First Midwest Bank v. Reinbold (In re I80 Equip., LLC)

591 B.R. 353
CourtUnited States Bankruptcy Court, C.D. Illinois
DecidedAugust 20, 2018
DocketCase No. 17-81749; Adv. No. 18-8003
StatusPublished
Cited by2 cases

This text of 591 B.R. 353 (First Midwest Bank v. Reinbold (In re I80 Equip., LLC)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, C.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
First Midwest Bank v. Reinbold (In re I80 Equip., LLC), 591 B.R. 353 (Ill. 2018).

Opinion

Thomas L. Perkins, United States Bankruptcy Judge

This matter is before the Court on cross motions for Judgment on the Pleadings filed by the Plaintiff, First Midwest Bank, and the Defendant, Jeana K. Reinbold, as Chapter 7 Trustee for the estate of I80 Equipment, LLC. The cross motions are addressed to both Count I of the complaint seeking declaratory relief and to the related amended counterclaim asserted by the Trustee.1 The issue concerns the perfection of First Midwest's security interest in the assets of the Debtor, I80 Equipment, LLC.

I80 Equipment, LLC, operated a commercial business whereby it purchased and refurbished bucket trucks for resale. Prior to the Debtor's bankruptcy filing, First Midwest made a commercial loan to the Debtor. On March 9, 2015, the Debtor executed a First Amended and Restated Loan Agreement and a First Amended and Restated Security Agreement in favor of First Midwest Bank, granting a security interest in twenty-six specifically identified categories of collateral, including accounts, chattel paper, equipment, general intangibles, goods, instruments and inventory and all proceeds and products thereof. The Debtor owns no real estate and the security interest granted First Midwest covers substantially all of the Debtor's assets. First Midwest filed its Financing Statement on April 3, 2015, with the Illinois Secretary of State, describing its collateral as "All Collateral described in First Amended and Restated Security Agreement dated March 9, 2015 between Debtor and Secured Party."2 The Debtor defaulted under the terms of the loan in November, 2017. First Midwest's proof of claim states that it is owed more than $7.6 million.

*356On December 6, 2017, the Debtor filed a voluntary petition for relief under Chapter 7, whereupon Jeana K. Reinbold was appointed Trustee. First Midwest brought this action against her, seeking a declaratory judgment that its security interest in the collateral of the Debtor is properly perfected and senior to the interest of all other claimants, including the Trustee. By her amended answer, the Trustee denies that First Midwest's security interest was properly perfected and asserts an amended counterclaim in exercise of her strong-arm powers pursuant to section 544(a) of the Bankruptcy Code, to avoid First Midwest's lien.3 Both parties filed motions for judgment on the pleadings which have been fully briefed and are presently before the Court for decision. With the consent of First Midwest, the Trustee sold the assets of the estate for $1,862,806 and is holding the net proceeds pending this Court's decision.

Under Federal Rule of Civil Procedure 12(c), applicable to this proceeding by Bankruptcy Rule 7012(b), a motion for judgment on the pleadings may be used to dispose of a case based upon the underlying substantive merits when the material facts are not in dispute. In this role, the appropriate standard is that applicable to motions for summary judgment. Alexander v. City of Chicago , 994 F.2d 333 (7th Cir. 1993). When reviewing a motion for summary judgment, all facts and inferences are to be viewed in a light most favorable to the non-moving party. The motion is properly granted where the material facts are undisputed and the movant is entitled to judgment as a matter of law. Flora v. Home Fed. Savings & Loan Ass'n, 685 F.2d 209 (7th Cir. 1982).

Courts have routinely held that creditors may incorporate by reference security agreements into financing statements, where the security agreement is identified in and filed with the financing statement, and that such incorporation satisfies the collateral description requirements for financing statements under Article 9 of the Uniform Commercial Code (UCC). See In re The Holladay House, Inc, 387 B.R. 689, 696 (Bankr. E.D. Va. 2008) (citing cases), aff'd, 2008 WL 4682770 (E.D. Va.). First Midwest takes the position that a financing statement's identification of the security agreement as the document containing the description of the collateral, without filing it as part of the financing statement and without setting forth any collateral description in the financing statement, is nevertheless sufficient to perfect its security interest. The parties agree that no published opinion by any court addresses this exact issue.

The parties agree that there is no dispute concerning the material facts and that the sole issue for decision by the Court is whether First Midwest has properly perfected its security interest. That issue is governed by Revised Article 9 of the Uniform Commercial Code, adopted in Illinois in 2001. 810 ILCS 5/9-101, et seq. As a general rule, applicable here, an attached security interest is perfected by the filing of a UCC-1 financing statement. 810 ILCS 5/9-310(a). Prior to the adoption of Revised Article 9, former Illinois UCC section 9-402(1) provided that a financing statement was sufficient if it contained a statement indicating the types, or describing the items, of collateral. Under Revised Article 9, the issue of whether and in what manner collateral must be described in a financing statement is governed by sections 9-502, 9-504 and 9-108.

*357Section 9-502(a), setting forth the mandatory requirements for the information that must be included in a financing statement, provides that the contents of the financing statement are sufficient only if it:

(1) provides the name of the debtor;
(2) provides the name of the secured party or a representative of the secured party; and
(3) indicates the collateral covered by the financing statement.

810 ILCS 5/9-502(a). The controversy here, involving only the third requirement, is whether a statement that the collateral is described in the underlying security agreement sufficiently "indicates the collateral."

Elaborating on the indication of collateral, Section 9-504 provides that a financing statement sufficiently indicates the collateral it covers if the financing statement provides:

(1) a description of the collateral pursuant to Section 9-108; or
(2) an indication that the financing statement covers all assets or all personal property.

810 ILCS 5/9-504. First Midwest is not contending that its financing statement indicates that it covers all assets or all personal property.

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Bluebook (online)
591 B.R. 353, Counsel Stack Legal Research, https://law.counselstack.com/opinion/first-midwest-bank-v-reinbold-in-re-i80-equip-llc-ilcb-2018.